You’ve started a new business and you’re not sure whether you should incorporate or not. You should know that a corporation is a legal body that is created by one person or by a group of shareholders in a company. A corporation is separate from its shareholders. Incorporating your business is very important because it will protect the shareholders from litigation or debts. The corporation is free to conduct business, to create contracts, and also to sue- and to be sued- separate from its owners. When considering whether or not to incorporate your business, there are a few advantages and disadvantages you should keep in mind.
One of the primary advantages to incorporating is the fact of limited liability. This will offer protection from the business owners. A corporation is independent of its shareholders and their personal assets. So, if someone sues the company, the assets of the owners will not be considered.
Since it is a separate entity, transfer of ownership is easy. Ownership of a corporation can be transferred without having any effect on the business. When, and if, a shareholder opts to sell his/her shares, the corporation will continue.
When it comes to corporations, it is much easier to raise new capital. Stock structures of corporations are much more attractive to potential investors. Additionally, the ability to issue the shares is much easier.
In corporations, there is a centralized management structure. A board of directors is elected by the shareholders. The board then elects the officers to run the business.
When you incorporate your business, there are too many expenses. When incorporating, you must pay fees. Additionally, the corporation is required to pay taxes. The shareholders then have to pay taxes on their dividends that they receive from the corporation.
You have to keep lots of records and reports with a corporation. You have to file reports and tax returns on time on a regular basis. You must also maintain business bank accounts and records separate from your personal accounts and assets and you must keep records of corporate proceedings such as business meetings.